RP Enterprises, Inc.

August 21, 1995 RP Enterprises, Inc. Suite 219, 2nd Flr. Bank of P.I. Office Condominium Plaza Cervantes, Binondo Manila S i r : This refers to your letter dated August 1, 1995, requesting opinion on the queries posed therein. LibLex As stated, your corporation purchased shares of stock in other corporations (listed or unlisted in the Stock Exchange).Your queries are: 1. Is it necessary that a Board Resolution be furnished to the purchaser if the corporation sells or disposes said shareholdings? 2. Is the sale of said shareholdings valid even without a Board Resolution? 3. Will the signing and endorsement of the stock by the president of the corporation be sufficient to effect the transfer or sale of the shares? Investments of a corporation in another corporation in the form of shares of stock constitute part of the asset or property of the investor corporation, and hence, subject to the provisions of the Corporation Code relative to disposition of corporate property. Such corporate asset may be disposed of by the corporation pursuant to Section 36 of the Corporation Code which provides: "SECTION 36. Corporate power and capacity . Every corporation incorporated under this Code has the power and capacity: xxx xxx xxx 7. To purchase, receive, take or grant, hold, convey, sell ,lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution ." (Emphasis Supplied) However, while a corporation is expressly empowered to dispose corporate assets, such power is subject to the provisions of Section 40 of the Corporation Code which provides in part: "SECTION 40. Sale or other disposition of assets . Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets ,including its goodwill, upon such terms and conditions and for such consideration, which may be money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock ; or in case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members in a stockholder or member meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown in the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. xxx xxx xxx Nothing in this section is intended to restrict the power of any corporation, without the authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its property and assets if the same is necessary in the usual and regular course of business of said corporation, or if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business . ....(Emphasis supplied) Therefore, any disposition of corporate assets requires the approval by the Board of Directors and stockholders. However, if the property to be sold constitutes merely a part of the corporate assets and the sale thereof will not render the corporation incapable of continuing its business or if the disposition is necessary in the usual and regular course of business, the Board of Directors as it may deem expedient and in good faith, may dispose the same without the approval of the stockholders. Furthermore, it is well settled that the Board of Directors is the governing body of the corporation with whom the management and control of the corporate affairs and property are vested. The pertinent provision of the Corporation Code provides, thus: "SECTION 23. The board of directors or trustees . Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks or where there is no stock from among the members of the corporation who shall hold office for one (1) year and until their successors are elected and qualified. ...(Emphasis supplied) Accordingly, any disposition of the corporation's shareholdings not authorized by the Board of Directors is not binding on the corporation. As to whether the purchaser should be furnished a copy of the required Board Resolution, it depends on the agreement of the contracting parties to the transaction. To protect purchaser's interest, he may demand a copy of the Board Resolution. Relative to the last query, the pertinent provision of the Corporation Code provides.: "SECTION 63. Certificate of stock and transfer of shares . The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. ...(Emphasis supplied) Thus, to validly effect the transfer or sale of shares owned by the corporation, the certificate(s) of stocks evidencing the ownership thereof must be duly indorsed by the person authorized in the corporate by-laws, but only after the transaction has been approved by the Board of Directors, or in the absence of a provision in the by-laws, by the person duly authorized by the Board of Directors. Please be advised accordingly. (SGD.) FE ELOISA C. GLORIA Associate Commissioner